U.S. Must Modernize Regulatory Framework to Spur High-Speed Broadband Deployment

95% of U.S. households no longer rely solely on the traditional home telephone to stay connected, leaving the current regulatory framework lagging behind marketplace realities and diverting investment away from 21st century broadband infrastructure

Outdated regulations that force companies to build and maintain obsolete copper-based legacy telephone networks are unnecessarily diverting investment away from modern broadband networks and services that 95% of U.S. households prefer, desire and use.

The report finds that the overwhelming majority of U.S. consumers have a plethora of choices to meet their voice, video, and Internet-access communications needs. They rely on the use of smart wireless devices, cellphones, wired Internet-enabled VoIP services, and over-the-top Internet-enabled applications (i.e. Skype), far more than on traditional telephony to stay connected in today’s digital age.

These choices are available over different platforms—wireline, cable, wireless, and satellite—that compete on the basis of different economics and different technical characteristics. Those differences enable these platforms to innovate to satisfy a variety of consumer needs, to serve different customer segments, and to make their competition sustainable.

The study notes that 99% of all U.S. communications traffic is now carried over these platforms in Internet Protocol, while legacy circuit-switched traffic is now less than 1% of traffic and likely to further decrease to a small fraction of 1% by 2017.

The study notes that at year-end 2012, 38% of Americans relied on wireless exclusively, 4% relied on VoIP exclusively and only 5% relied on traditional plain-old-telephony (POTS) exclusively. Another 53% relied on wireless in combination with either POTS (29%) or VoIP (24%).

Although only 5% of households rely exclusively on traditional circuit-switched POTS, and only 1% of U.S. traffic is circuit-switched, regulators still require incumbent phone companies to maintain their legacy networks even where they upgrade to IP over fiber-fed infrastructure. By contrast, cable and wireless networks are free to upgrade their infrastructure without such constraints.

Where incumbent telephone companies invest in IP over fiber-fed infrastructure they are gaining share against cable companies’ Internet-access and video, even as they lose subscribers where they are still providing legacy services such as POTS and low-speed DSL.

“In addition to the powerful competitive pressure that wireless places on other communications providers, it is important that the cable companies and phone companies continue to compete effectively with each other. That requires the FCC to move forward with wireline policies that ensure that incumbent telephone companies, which are investing billions of dollars annually in America’s communications infrastructure in spite of severely outdated rules, are no longer hamstrung and are free to innovate.” — Dr. Kovacs

Overwhelming Consumer Use of Broadband Demands Full Technology Transition

“If federal and state policymakers want to continue to foster a world-leading, highly competitive communications market in America that is responsive to consumers’ needs and preferences, they must modernize policies and create a level playing field for all competitors to invest and innovate.” — IIA Honorary Chairman Rick Boucher

“Unlike other competitors, America’s incumbent telephone companies are required to maintain obsolete copper networks despite the rapidly fading customer base, thereby diverting tens of billions of dollars away from investment in next-generation, high-speed broadband service, and it is time to update the regulatory framework to reflect the realities of today’s marketplace.” — IIA Co-Chairman Bruce Mehlman

To illustrate how the current regulatory framework is slowing investment in broadband infrastructure, one need only look at the incumbent telephone companies’ capital expenditures during the 2006 through 2011 period. Dr. Kovacs estimates that the incumbents spent a total of $154 billion on their communications networks. More than half of that was spent on maintaining fading legacy networks, leaving less than half to upgrade and expand their high-speed broadband networks. In contrast, cable providers, who are free from legacy network rules, spent a total of $81 billion in capital expenditures over the same six-year period, and were free to dedicate all of it to their broadband infrastructure.

Dr. Kovacs states that consumer protections and access to reliable 911 emergency services must remain available for broadband communications services; however regulators should acknowledge the reality that a majority of consumers today rely heavily on multiple IP-enabled wireless and wired network infrastructures and means of communications.

In addition to the study’s findings on consumer trends and the impact of investment on communications networks, it discusses the Google-Fiber Model; the impact of the 1996 Telecommunications Act; the failure of mandated network-sharing; and the success of inter-platform competition and over-the-top services.